§1.1 Field of the Invention
The present invention concerns arbitrating and/or advertising. In particular, the present invention concerns on-line advertising where advertisers compete for one or more desired ad rendering attributes (e.g., position, size, volume, time period, ad type, etc.).
§1.2 Background Information
Existing online advertising arbitrations known in the art allow advertisers to compete for preferred advertising spots on a document. For example, in one online advertising pricing model known in the art, the ad system charges each advertiser based on its next lower competitor's maximum offer. For example, in an arbitration involving N advertisers, the “top” advertiser in Position 1 may be charged an amount per user click equal to, or otherwise determined using, the maximum offer proffered by the next ranked advertiser in Position 2. Similarly, an advertiser in Position i may be charged an amount based on the maximum offer of the advertiser in Position i+1, and the last advertiser in Position N may be charged based on a reserve price. For example, the AdWords and AdSense advertising services from Google or Mountain View, Calif. provide price discounting under which a price for an ad is determined using information from a next lower ad. U.S. patent application Ser. Nos. 10/340,543, filed Jan. 10, 2003, titled: “AUTOMATED PRICE MAINTENANCE FOR USE WITH A SYSTEM IN WHICH ADVERTISEMENTS ARE RENDERED WITH RELATIVE PREFERENCES” and listing Eric Veach and Salar Arta Kamangar as inventors (“the '543 application”); and 10/340,542, filed Jan. 10, 2003, titled “AUTOMATED PRICE MAINTENANCE FOR USE WITH A SYSTEM IN WHICH ADVERTISEMENTS ARE RENDERED WITH RELATIVE PREFERENCE BASED ON PERFORMANCE INFORMATION AND PRICE INFORMATION” and listing Eric Veach and Salar Arta Kamangar as inventors (“the '542 application”) describe some embodiments that provide such price discounting. Both of these applications are incorporated herein by reference.
A dominant bidding strategy provides a participant in an arbitration (such as an auction) a way to maximize their benefit from the arbitration without regard to the behavior of the other participants. Existing arbitration models, such as those introduced above, have a dominant bidding strategy when there is only one advertising position up for arbitration. However, in the common case where multiple advertising positions are up for arbitration, no dominant bidding strategy exists. A manifestation of this deficiency is that the marginal cost paid per click may exceed, sometimes by a great degree, the maximum offer set by the advertiser for the price per click. This is because these models ensure only that the average price per click is less than the maximum offer price. The following example illustrates how marginal costs per click may greatly exceed a maximum cost per click offer under one arbitration model.
In this example, assume that ads are placed based solely on a maximum offer, and that an advertiser pays the maximum offer from the advertiser of the next lower ad. Finally, assume that positions of ad spots have monotonically decreasing selection rates of 1.00% for ad spot position 1, 0.70% for ad spot position 2, 0.65% for ad spot position 3, and 0.30% for ad spot position 4. Assume further that in a first scenario, advertiser A offers a maximum of $0.90 per selection, advertiser B offers a maximum of $0.80 per selection, advertiser C offers a maximum of $0.40 per selection, and advertiser D offers a maximum of $0.35 per selection. Under this first scenario, advertiser C would pay $22.75 for 65 selections over 10000 impressions (i.e., $0.35*0.0065*10000). Assume that advertiser C would like to move up to the second position to increase the number of selections of its ad. To do so, assume that under a second scenario, advertiser C makes a maximum offer of $0.81. Under this second scenario, advertiser C would pay $56.00 for 70 selections over 10000 impressions (i.e., $0.80*0.0070*10000). Notice that advertiser C would pay an extra $33.25 (=$56.00−$22.75) for 5 (=70−65) extra impressions. Thus, the marginal cost for the five additional impressions would be $6.65 per selection (=$33.25/5). This marginal cost greatly exceeds its average cost per selection of $0.80.
As the foregoing example illustrates, even with price discounting features, advertisers should be very careful with their maximum offers under some current online ad arbitration systems. Assuming that information such as ad position selection rates and competitor maximum offers are made available to advertisers, to choose an optimal maximum offer, an advertiser still must continually monitor this information and change its maximum offer as this information changes. This is because the optimal maximum offer for an advertiser is a function of the behavior of its competitors and the selection rates of the different positions of ad spots on a Webpage.
Moreover, even for a sophisticated, careful advertiser, some current implementations of online advertising arbitrations that are based on the “position arbitration” model (such as the Google AdWords service), or some other competition for one or more desired ad rendering attributes, might not provide enough information for advertisers to make well-informed choices of maximum offers. To set an optimal maximum offer under existing models, advertisers need to know the relative selection (e.g., clickthrough) rates for different ad positions, and the maximum offers chosen by other competing advertisers.
Another deficiency found in some known pricing models is price instability. Since the price paid by each advertiser is determined by a single competitor, one advertiser can cause great fluctuations in the prices paid by its competitors.
In view of the foregoing, better arbitration and cost discounting models for online advertising would be useful. It would be useful if a marginal cost paid per click could not exceed a maximum offer set by the advertiser for the price per click.